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This information applies to Scotland only
What is in this information
The issues you need to consider when buying a property are set out here. The processes and how they relate to each other are explained stage by stage.
If you have problems buying a home, see Problems with buying and selling a home.
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How much can you afford
The first thing you need to do is to decide how much you can afford. You will need to look at how much money you have available yourself and how much you can borrow. There are a number of different financial institutions that offer loans to people buying property, for example, building societies and banks. You should find out if you are able to borrow money, and if so, how much.
Some building societies now provide buyers with a certificate that states that a loan will be available provided the property is satisfactory. You may be able to get this certificate before you start looking for a property.
Before finally deciding how much to spend on a property, you need to be sure you will have enough money to pay for all the additional costs. These include:-
- survey fees
- valuation fees
- stamp duty land tax - this is payable on properties costing more than £120,000 (in a limited number of areas, designated as ‘disadvantaged’, it is only payable on properties costing £150,000 or more) and is at least 1% of purchase price fees for recording or registering the title deeds
- fees, if any, charged by the mortgage lender or someone who arranges the mortgage, for example, a mortgage broker
- solicitor’s fees
- VAT
- removal expenses
- any final bills, for example, gas and electricity, from your present home which will have to be paid when you moves.
For more information about stamp duty land tax, go to HM Revenue and Customs website at www.hmrc.gov.uk, or ring the HM Revenue and Customs Stamp Office enquiry line on: 0845 603 0135.
You should be aware that you may still have some costs even if your bid for a property is not accepted, for example, you may already have paid for a valuation and/or survey. If the solicitor has started any legal work you may also have to pay for the work done.
You should also take into account the running expenses of the property you wish to buy. These may include:-
- heating bills
- council tax
- insurance costs - including life insurance, buildings and content insurance.
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Choosing a solicitor or conveyancer
When someone wishes to buy a house, in almost all situations, it is necessary to use a solicitor for the legal work that needs to be done. You should approach local firms of solicitors and/or ask friends and relatives to recommend a suitable firm. Before making a choice of solicitor, you should ask for estimates of their charges for buying a house. It is important to contact more than one solicitor as there is no set scale of fees for purchasing a house and different solicitors will make different charges. You should:-
- check whether the figure quoted is a fixed fee or depends on how much work is involved
- check that the figure includes stamp duty, search fees, land registration fees, expenses and VAT and get a breakdown of these costs
- find out what charges, if any, will be made if a sale falls through.
You cannot use the same solicitor as the seller as the solicitor cannot act for both buyer and seller. It is an advantage to use a local solicitor who will have a good knowledge of the local housing market.
What the solicitor or conveyancer does
The main tasks of the solicitor will be to:-
- discuss the buyer’s needs and explain the procedure for buying a house
- explain the different types of survey and arrange a survey for the house
- arrange a mortgage and advise on the different methods of loan repayment available.
- inform the seller’s solicitor that the client is interested in making an offer for the house
- draw up and submit a formal offer for the house in consultation with the buyer
- prepare mortgage documents
- check the legal ownership of the property and prepare a deed confirming the buyer’s ownership. A deed is a document which proves who owns the property
- check the property certificate from the local councils provided by the seller to find out if they are planning any repairs or developments affecting the house
- check that alterations to the house have had planning permission from the local authority
- check the search of the official records carried out by the seller’s solicitor to see if there are any problems with the seller’s right to sell the property
- receive the money to pay for the purchase and pay it to the seller’s solicitor
- check that the house is insured
- negotiate with the seller’s solicitor in the event of any dispute.
You can arrange some of these things, for example a mortgage, insurance yourself but will still have to use a solicitor for the legal side of the purchase.
It is now also possible to use an independent qualified conveyancer for this work. A list of independent qualified conveyancers can be obtained from:-
The Law Society of Scotland
26 Drumsheugh Gardens
Edinburgh
EH3 7YR
Tel: 0131 476 8179
E-mail: lawscot@lawscot.org.uk
Website: www.lawscot.org.uk
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Mortgages
If you wish to buy a home you may be able to borrow money to do this. The borrower offers the home as security against the loan. The lender has a legal charge against the property, that is, if you do not keep up the agreed repayments, the lender can take possession of the property. This is known as a mortgage. The loan will be for a fixed period and the borrower will be charged interest on the loan.
Types of mortgages
There are several types of mortgage available. The most common are:-
- repayment mortgage. This is a mortgage in which the capital borrowed is repaid gradually over the period of the loan. The capital is paid in monthly instalments together with an amount of interest. The amount of capital which is repaid gradually increases over the years while the amount of interest goes down
- endowment mortgage. This mortgage consists of two parts: the loan from the lender and an endowment policy taken out with an insurance company. You pay interest on the loan in monthly instalments to the lender but do not actually pay off any of the loan. The endowment policy is paid monthly to the insurance company. At the end of the period of the mortgage, the policy matures and produces a lump sum which pays off the loan to the lender and may, in some circumstances, produce an additional lump sum. There is a risk that the endowment policy will not be worth enough to pay off the loan at the end of the mortgage period. If you have been told by your endowment provider that your policy will not be enough to pay off your loan, you should seek independent financial advice, you can get information about dealing with endowment policies from the Financial Services Authority (FSA) at www.moneymadeclear.fsa.gov.uk
- pension mortgage. This mortgage is primarily for self-employed people. The monthly payments consist of interest payments on the loan and contributions to a pension scheme. When the borrower retires, there is a lump sum to pay off the loan and a pension
- ISA mortgage. With an ISA mortgage, you pay interest to the lender, and contributions to an Individual Savings Account (ISA) which should pay off the loan
- Islamic mortgage. This is a mortgage in which none of the monthly payments includes interest. Instead, the lender makes a charge for lending you the capital to buy your property which can be recovered in one of a number of different ways, for example, by charging you rent.
Where to get a mortgage from
A mortgage could be available from a number of different sources. Some of the available options are:-
- building societies
- banks
- insurance companies. They only provide endowment mortgages (see above)
- large building companies might arrange mortgages on their own new-build homes
- finance houses
- specialised mortgage companies.
Arranging a mortgage
You should arrange a mortgage before you find a house you would like to buy as it may take a few weeks for the bank or building society to process your application. You should investigate the different types of mortgage available and ensure that you are not being advised to take out a mortgage which is not suitable for you. You should be wary of mortgage advisers who recommend only one lender or one type of loan repayment (e.g. endowment policies) as the adviser may be receiving substantial commission for doing this. If you are having difficulty getting a loan, you should ask your solicitor to arrange one. You should check whether any charge is made for this.
Once you have been accepted for a mortgage loan and have been advised of the maximum available you need have no further direct contact with the lender. All communication should be channelled through your solicitor. When you have found a house to buy it should be possible to arrange a mortgage very quickly. In urgent cases it may be done in less than 24 hours.
If you intend getting a mortgage you should make sure you investigate the different options available. If in doubt, you may wish to consult an independent financial adviser. For help with finding a financial adviser you could consult a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.
Making a complaint about a mortgage lender
If you want to complain about a mortgage lender or broker, you should first discuss the problem with them, and then consider making a formal complaint. Each lender or broker should have its own internal complaints procedure. If you have followed this procedure and are still not satisfied, you can take your complaint to the Financial Ombudsman Service. The contact details are:-
Financial Ombudsman Service
South Quay Plaza
183 Marsh Wall
London
E14 9SR
Tel: 0845 080 1800
Fax: 020 7964 1001
E-mail: complaint.info@financial-ombudsman.org.uk
Website: www.financial-ombudsman.org.uk
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How to find a property
There is a number of ways in which someone could find a property to buy:-
- using estate agents or solicitors’ property departments
- visiting the local solicitors’ property centre
- looking at property pages in local newspapers
- contacting house building companies for details of new properties being built in the area.
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Deciding on a property
When you find a property you are interested in you should arrange to look round it to make sure it is what you want and to check as far as possible on the state of repair. You will need to get some idea of whether or not you will have to spend any additional money on the property, for example, on repairs or decoration. It is common for a potential buyer to visit a property two or three times before deciding to make an offer.
Warranties for newly-built properties
If the property is a newly-built property, check whether it has a Buildmark warranty. Buildmark warranties are organised by the National House-Building Council (NHBC) which is an independent organisation with over 20,000 builders of new houses on its register. Before being accepted onto the NHBC register, builders must be able to show that they are technically and financially competent and they must also agree to keep to NHBC Standards.
The Buildmark scheme covers homes built by NHBC registered builders once the NHBC has certified them as finished. The scheme will, for example, protect your money if the builder goes bankrupt after contracts have been exchanged but before completion. It also covers defects which arise because the builder has not kept to NHBC Standards. For more information, go to the NHBC website at: www.nhbc.co.uk.
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Getting a survey
You should not buy a house without getting it surveyed first. If you are buying the house with a mortgage, the lender will insist on having a survey for mortgage assessment carried out, to be paid for by the buyer. There are three main types of survey, or inspection:-
- mortgage valuation report (scheme 1 survey). A mortgage valuation is the least expensive type of inspection and provides a valuation of the property for the purposes of getting a mortgage
- home buyers report (scheme 2 survey). The home buyers report will consider not only the value of the property but will also examine the structure of the property and should identify any existing or potential problems
- full structural survey (or buildings survey). A full structural survey is expensive but provides a thorough and detailed inspection of the property.
The buyer’s solicitor should ensure that the surveyor is a member of:-
- the Royal Institute of Chartered Surveyors; or
- the Incorporated Society of Valuers and Auctioneers: or
- the Incorporated Association of Architects and Surveyors.
If the surveyor reports that there are some problems with the property, you will have to consider whether you still want to go ahead with the purchase. In some cases it may be necessary to ask a builder or other workman to estimate the cost of carrying out necessary repairs.
Sellers’ surveys
In some circumstances a survey organised by the seller may be available to you. Where these schemes are in operation, the seller arranges for the survey to be carried out and makes it available to potential buyers. The survey is usually a scheme 2 survey.
If you are considering using a seller’s survey you should get advice from your solicitor before proceeding. You should also check with your mortgage lender to ensure that the seller’s survey will be considered suitable for the lender.
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What kind of offer to make
Unconditional offer
It is normal practice for the buyer to arrange a mortgage and find out as much as possible about the house before making an offer. The offer specifies the price to be paid. Although this is called an ‘unconditional’ offer, it contains a number of standard conditions. You should not make an unconditional offer without having a survey carried out. You should also arrange a mortgage before making any kind of offer for the house.
Conditional offer
Making an unconditional offer can take time and means that you will have to pay for a survey. You may be able to avoid this by making a conditional offer. The conditional offer specifies the price to be paid but makes this subject to the buyer receiving a satisfactory survey.
The seller will rarely accept a conditional offer but may indicate that s/he will accept the offer if the ‘subject to survey’ condition is withdrawn. The buyer would then have to get the property surveyed very quickly.
A seller will almost always prefer an unconditional offer. If the house is advertised at a fixed price there is little to be gained by making a conditional offer.
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Making an offer
If you make an offer for a house it may be accepted. Once there is a binding contract, the buyer cannot withdraw from the contract without becoming liable for compensation. Even if the buyer or seller dies and sometimes even if the house burns down, the agreed price must be paid.
If the house is advertised at a Fixed Price this means that the seller is willing to accept the first firm offer at the price specified. The price is likely to be on the high side as it is the highest figure the seller thinks the house will fetch. The buyer should not feel obliged to offer the amount specified if the survey of the house shows that a lot of repairs are needed or if the house has been on the market for a long time.
If the house is advertised at an Upset or ‘offers over’ price this means the figure specified is the minimum the seller would be willing to accept. The seller will normally wait until a number of people have expressed an interest in making an offer and then announce a closing date. Sealed offers are submitted on that date and the seller chooses the best one. You will have to decide how much to offer based on the value of the property to you and the top price which you can afford to pay. The surveyor’s valuation will provide some guidance on this but you should also take into account the amount of interest in the property, the amount of repair the house needs and the current trend in house prices.
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Acceptance of offer
If you have made an unconditional offer for the house this will normally be accepted or rejected by the seller straight away. An acceptance may be completely unconditional, in which case there will be a binding contract immediately. Usually, however, the acceptance will contain a number of conditions and there will be no binding contract until all of those conditions have been accepted by your solicitor.
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Completion
After a binding contract has been agreed, called ‘concluding Missives’, your solicitor will complete the conveyancing procedures and prepare a number of documents, particularly a ‘disposition’ which will transfer ownership of the house to you.The contract or Missives will specify the date of entry to the property. This is the date on which you will have to pay the seller the purchase price of the property in return for the Disposition and the keys to the property. Your solicitor will make all the arrangements for settling the transaction on the date of entry and for completing the buyer’s loan at the same time. This is called ‘completion’ of the purchase.
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